Afternoon Reading
Some items to read over the long holiday weekend:
• Fissures Appear at the New York Fed (WSJ)
• Matt Taibbi on Goldman’s Response to his Rolling Stone article (True Slant)
• Manhattan Apartment Prices Drop as Lehman Effect Hits Home (Bloomberg) See also 2Q 2009 Manhattan Market Overview (Matrix)
• Talk of China bubble does not deter investors (FT)
• U.S. regulators could learn from Canada’s banks (USA Today)
• PODCAST: Robert Shiller Yale Professor of Economics, Case Shiller Index, Irrational Exuberance
• Hotel Loan Defaults Double in U.S. as Recession Curbs Travel (Bloomberg)
• Freddie, Fannie to Provide 125% LTV Mortgages, Worse Than Extremes of Subprime Frenzy (naked capitalism)
• Unwinding at AIG Prompts Pasciucco to Ponder Systemic Failure (Bloomberg)
• Rich Harvard, Poor Harvard (Vanity Fair)
• You’ve Got Blackmail: The AOL Account That Wouldn’t Die (WSJ)
• Can American Farms Make Bamboo the Next Big Cash Crop? (Popular Mechanics)
July 2nd, 2009 at 3:40 pm
I guess if Lehman were bailed out, RE actually COULD have kept rising infinitely.
July 2nd, 2009 at 3:49 pm
“Manhattan Apartment Prices Drop as Lehman Effect Hits Home (Bloomberg)”
Time for Leftback to demand a price reduction.
July 2nd, 2009 at 4:03 pm
The fannie and freddie news of 125% mortgages…the nimrods who decided to do this….they hear a rattle when they turn their heads quickly…
I have a dog smarter than this….
Forget how much we’ve given GM…fannie and freddie are the tax hogs…
July 2nd, 2009 at 4:05 pm
By the way, since 89% of Californians who have mortgages have a second mortgage…how is the 125% gonna work? Can we get 125% on the second, too? Why in the world not?????
July 2nd, 2009 at 4:11 pm
Just got off the phone with San Diego friend…. at last night’s poker group get-together, my friend asked who was working tomorrow (variety of professions and fields represented). Except for one guy doing some voluntary maintenance on a work pc, everyone was going to be idling. My friend is at the stage of questioning the government’s statistics because he believes it is far worse out there than what is being reported on happytalk CNBC.
July 2nd, 2009 at 4:25 pm
only good thing about today’s Nasdaq performance is that there’s now a huge gap to fill sometime in the future . . . . when is anybody’s guess.
July 2nd, 2009 at 4:34 pm
and we have our first bank failure!
http://www.marketwatch.com/story/illinois-john-warner-bank-fails-46th-of-year
July 2nd, 2009 at 4:35 pm
and this on jobs from CR
On the ’00s (the “Naughts”) …
Employment Dec 1999: 130.53 million
Employment Jun 2009: 131.69 million
July 2nd, 2009 at 4:36 pm
drat!!
one more time with feeling
And for the stock market?
S&P 500, Dec 31, 1999: 1469.25
S&P 500, July 2, 2009: 897.29
July 2nd, 2009 at 4:38 pm
and car sales
http://www.freep.com/article/20090702/BUSINESS01/907020445/1014/rss13
only one car maker had an improvement in sales
Subaru
July 2nd, 2009 at 4:44 pm
“Can American Farms Make Bamboo the Next Big Cash Crop”?
Actually BR, that’s an interesting topic…I started growing a little mini- bamboo forest on the corner of my property…
Everyone knows me…I’m the tin foil hat type that is prepared in ANY instance…But the thought occurred to me a few years ago that in a REAL CRISIS…Bamboo would be a very handy thing to have…
They’re the only GREEN SHOOTS I believe in at the moment…
July 2nd, 2009 at 5:04 pm
@ willid3 Says:
July 2nd, 2009 at 4:35 pm
and the stock market
On the ’00s (the “Naughts”) …
Employment Dec 1999: 130.53 million
Employment Jun 2009: 131.69
Hmmm who was president most of those years? A guy who doesn’t understand why we need good jobs in the US. Good jobs in the US get in the way of profits. What a short sided view with long term effects.
July 2nd, 2009 at 5:22 pm
Freddie and Fannie to finance mortgages at 125% LTV? I guess this is the FED’s plan B on getting that housing ATM revved up again and consumers spending, spending and spending some more since they can’t seem to be able to keep interest rates down because of all the USG debt that’s being floated. We’re headed right back where we were. Did they not learn anything? Obviously not. That’s okay though for my investments…as I’ve been playing their stupidity all along.
July 2nd, 2009 at 5:23 pm
and another bank fails!
http://www.marketwatch.com/story/first-state-bank-of-winchester-fails-47th-of-2009
July 2nd, 2009 at 5:24 pm
http://www.nytimes.com/2009/07/02/business/02lawyer.html
Finding Debt a Bigger Hurdle Than Bar Exam
Suzy Allman for The New York Times
Robert Bowman was refused entry to the New York bar because of $400,000 in student debt.
Published: July 1, 2009
All his life, Robert Bowman wanted to be a lawyer. He overcame a troubled childhood, a tragic accident that nearly cost him a leg and a debilitating Jet Ski collision.
He put himself through community college, worked and borrowed heavily to help pay for college, graduate school and even law school. He took the New York bar examination not once, not twice, not three times, but four, passing it last year. Finally, he seemed to be on his way.
In January, the committee of New York lawyers that reviews applications for admission to the bar interviewed Mr. Bowman, studied his history and the debt he had amassed, and called his persistence remarkable. It recommended his approval.
But a group of five state appellate judges decided this spring that his student loans were too big and his efforts to repay them too meager for him to be a lawyer.
“Applicant has not made any substantial payments on the loans,” the judges wrote in a terse decision and an unusual rejection of the committee’s recommendation. “Applicant has not presently established the character and general fitness requisite for an attorney and counselor-at-law.”
Mr. Bowman, 47, appears to have crossed some unspoken line with his $400,000 in student debt and penalties, accumulated over many years.
…..Mr. Bowman may need a good lawyer who is not in debt here…Curmudgeon? Okie Lawyer? Anyone licensed in NY?
July 2nd, 2009 at 5:45 pm
Sucks for him that student loans are non-dischargeable unless you’re missing all of your limbs.
July 2nd, 2009 at 6:01 pm
400K?!!! What the F was he thinking? I’ve got to question his judgment too. But with that said, he’s just been doing it the American way. /snark/
And why the heck did he do grad school and law school if his goal all along was to be a lawyer?
There are many questions to be asked and answered here before fully understanding and judging the situation, but I really don’t know how he ever expected to dig out of that hole without being a blue blood with connections to get on with the big money law firms. He doesn’t seem to be of that ilk.
I’ll have to go read that article.
July 2nd, 2009 at 6:13 pm
Bamboo forests covering the Mississippi Delta? And I suppose they’ll do the harvesting with a jungle gin. Next they’ll be talking about a new American strain of Giant Pandas
July 2nd, 2009 at 6:17 pm
Can’t wait to read the Rich Harvard/Poor Harvard. I love that sort of stuff….why does it seem like everything Robert Rubin touches turn to dog crap?
I remember that team Harvard used to have that left in 2005. They were very smart, but almost too smart. The article doesn’t mention that Jack Meyer went on to found his own hedge fund that blew up when the House of Cards started to fall….
Love the bamboo story…it’s good material….There’s a great Botanical garden in Austin, TX where they grow all kinds of bamboo….so, this area can certainly support some Bamboo cash crops.
I love how everything is a “Lehman” affect…talk about pumping the same tired meme….”If only Lehman weren’t ‘allowed’ to fail…” What a bunch of shit…I couldn’t even read the piece because of the title….
July 2nd, 2009 at 6:22 pm
pat g says- re the USG-
“as I’ve been playing their stupidity all along.”
excellent strategy- I think we are all trying to do the same
July 2nd, 2009 at 6:26 pm
AT Says-
I love how everything is a “Lehman” affect…talk about pumping the same tired meme….”If only Lehman weren’t ‘allowed’ to fail…” What a bunch of shit”
no kidding- it appears it is a disparaging slight to the USG for being so fucking naive to allow such an important institution to fail-
thus the TBTF doctrine we have now- must be pretty cool to be one of those banks
July 2nd, 2009 at 6:31 pm
and another bank fails!
http://www.fdic.gov/bank/individual/failed/millennium.html
July 2nd, 2009 at 6:33 pm
and 2 more
The Elizabeth State Bank
The First National Bank of Danville
so far 6 banks just today!
July 2nd, 2009 at 6:39 pm
@ahab
My investments would be doing much better, if investors would stop running to the “safety” of the USD, Treasuries and the Yen. What safety??
July 2nd, 2009 at 6:52 pm
I just read an article by Gross who claims that the economy will stay weak “for a number of years”. His, is just one in a series, predicting the same fate for us that I’ve read over the last few weeks. If indeed these forecasts are accurate, then the FED will remain very accomodative for at least that long. Do the math!!
July 2nd, 2009 at 7:33 pm
Make that seven failed banks today. SIX in Illinois alone.
July 2nd, 2009 at 7:35 pm
How about this one? Sweden’s central bank cut the deposit rate to NEGATIVE .25, effectively charging savers interest on deposited money. I would love to see them do that here. I, for one, would pull every last nickel I have out and stuff it in a safe or lock box.
July 2nd, 2009 at 7:35 pm
one of the best interviews I have seen in a while- the author of the Goldman Sachs critique in the Rolling Stone being interviewed on Canadian television no less- I guess we won’t see him on CNBC-
http://watch.bnn.ca/the-close/july-2009/the-close-july-2-2009/#clip189690
July 2nd, 2009 at 7:37 pm
Of course not, ahab. Our MSM would rather cover the goings on at Neverland Ranch than actually cover anything serious.
July 2nd, 2009 at 7:48 pm
Does anyone know how much the FED is paying the banks for their “U.S. taxpayer” reserves? Just curious.
July 2nd, 2009 at 7:55 pm
Pat G.
It’s all such a joke, isn’t it? The banks are sucking money out of every nook and cranny of our economy as we let them “earn” their way out of their atrocious mess. And then they get to act like they’re friggen geniuses and give themselves raises and bonuses. And the bondholders skate away and shareholders (gamblers) who’ve prospered during this rally get to act like investing geniuses. All due to the largess of the Fed and the Treasury.
If most Americans really understood what’s going on here, beyond just the TARP bailout (which most don’t really understand either), they’d be more outraged, I’m sure. But alas, it isn’t so.
July 2nd, 2009 at 8:09 pm
@Troy
I agree. I posed the question about what percentage the FED is paying the banks on our reserves because I know what the banks are paying the citizens on their deposits. I just wondered if it was even close.
July 2nd, 2009 at 8:18 pm
@Pat G
That’s funny…
I had to suggest to a friend of mine recently that the equities he was holding were looking to be about as high in value that he’d see in a very long time…
When someone who can’t TRADE the market is in a position like that, the only real option is CASH (CD’s)…So I said…”you know? maybe just hang out there for awhile”…
But probably in about 4-6 months (after we take the next leg down), that CASH won’t be all that safe anymore (vis-a-vis SWEDEN)…
Tough times when you can’t even feel safe holding CASH for any meaningful length of time…
July 2nd, 2009 at 8:29 pm
Ahab. Thanks for that video link to Taibbi….
Love that BNN network….they always seem to be so dignified and thoughtful in their interviews….it’s almost like their anchors actually “know” something….
July 2nd, 2009 at 8:34 pm
Bruce in Tn Says:
July 2nd, 2009 at 5:24 pm
http://www.nytimes.com/2009/07/02/business/02lawyer.html
Bruce:
I called this the “Outrage of the Day” on another blog I frequent.
July 2nd, 2009 at 8:47 pm
Oh, and I am licensed in Oklahoma (“Okie” means Oklahoman). And I no longer actively practice.
I think that if he cannot win on the issue of getting admitted (not an easy case, as Bar Associations have historically been allowed to govern themselves and “equal protection” would require “state action”, if I recall correctly; although “color of law” under Civil Rights section 1983 would be an interesting case), I think he would have a great case under bankruptcy code 11 USC 528(a)(8) (non-dischargeability of student loans). However, having said that even, there was a case I remember where someone was involuntarily removed from medical school and could prove he could never make more than $35,000 / year and he was not allowed to discharge his $250,000 student loan debt. So even that is not a slam dunk.
July 2nd, 2009 at 8:49 pm
OkieLawyer:
What part of that are you outraged with? I see two outrages….first of all….why the hell does someone need 400K in loans to get a law degree? That seems asinine. Who lent this fellow 400K? The final outrage is why he was denied acceptance into the wonderful legal profession. C’mon, how the hell is this poor fool going to be able to pay off this debt without becoming a lawyer, his chosen profession….
I guess it all points to issues that arise when society overvalues certain professions: finance and law…
This poor chap would have been much better off becoming an Air Conditioner repairman in Houston, making 80-100/hr…with NO STUDENT DEBT.
July 2nd, 2009 at 9:22 pm
Andy T
Here’s the link to the story. http://www.nytimes.com/2009/07/02/business/02lawyer.html?em
Apparently his loans amounted to $230K but built up to 400K due to late fees, interest, etc. Still crazy debt when you have no idea what kind of career you may be able to build. Not all lawyers are raking in big bucks, that’s for sure. God knows why he felt compelled to get the Master of Law degree in London and how much that added to his debt load.
This notion of building up huge student loan debt without concern for how to pay it back is hopefully over. Too many people have hooked a great big ball and chain to their leg coming out of school with little ability to pay it back in a reasonable time frame. It’s just insane. But it became the norm.
The guys has certainly got some really bad luck, that’s for sure! Hit by an ATV, hit by a jet ski.
July 2nd, 2009 at 9:29 pm
@will:
You missed one:
By DAN FITZPATRICK and MICHAEL R. CRITTENDEN
State regulators closed six banks in Illinois and one in Texas, raising the number of bank failures in the U.S. to 52 this year. The seizures were the most in a single day during the financial crisis.
The Federal Deposit Insurance Corp. said the closures of First State Bank of Winchester, John Warner Bank, Rock River Bank, Elizabeth State Bank, First National Bank of Danville, Founders Bank and Millennium State Bank of Texas are estimated to cost the FDIC $314.3 million. Founders Bank was near Chicago, but the rest were spread around the state. Thursday’s failures give Illinois 12 seizures for 2009, surpassing Georgia for most closures among U.S. states.
________________________________________________________________________________
Nothing to see here…keep walking…
July 2nd, 2009 at 9:30 pm
Re: outrage(s)
The amount he borrowed for his education was actually around $250,000 for an LLM (if I read it correctly), which is a higher degree than a JD. The reset were penalties imposed by Sallie Mae and successive collectors.
He passed the bar exam and had no criminal record (that I am aware of). Having too much debt does not sound like a sound reason to deny admission to the bar. If that were the case, then only trust fund babies would be eligible for law school, and that is what we have been trying to get away from as a matter of policy in the legal profession (broadening the life experiences of lawyers).
The third issue which you raised is one that I have mentioned on my blog; namely, that we are creating debt peons of new graduates. The amount of “value added” education in terms of additional earned income isn’t keeping up with the debt principal and interest over their lifetime. (I referred to it as a kind of “barrier to entry.”)
July 2nd, 2009 at 9:48 pm
Okie,
There was some one who majored in dance and got his legs mangled in a car accident. His loans were not forgiven because “he could teach.” I guess he could show his class the titanium two step.
July 2nd, 2009 at 10:37 pm
Going a little afield here, just cause I’m feeling giddy on a Thursday night before Independence Day….
but CNBC actually has a very long clip available between David Faber and Alan Greenspan dated Sep ‘08….for me, it’s sort of fascinating in re: Monetary supply and credit expansion…..
It relates to a debate between deflationistas (like me) and inflationistas from a couple of days ago….the interesting bits in there around min 11 – 17 is where Greenspan expresses genuine befuddlement over the amount of lending that was done to homeowners, in terms of home equity withdrawals and subprime. He was surprised about how much lenders were lending! For me, the way this fellow seems genuinely shocked about how credit expanded beyond the Fed’s control……is EXTRAORDINARY. Anyone who still believes in the Chicago-based neoclassical monetary school needs to really listen to what this man is saying here…..He’s basically admitting, without realizing it, that they were out of control of the debt market and the broader creation of money/debt. As BR might say…”fascinating stuff…”
http://www.cnbc.com/id/31555808
July 2nd, 2009 at 11:02 pm
Greenspan was amazingly, scarily, outrageously, stunningly, questionably, clueless about what was going on. He must have been so isolated from reality. His minions must have made a remarkable effort to shield him from the ugly facts of what was going on.
Or he was blinded by his ideology and arrogant about his powers.
Probably some of both. Regardless it’s maddening to watch this clueless old fool express such befuddlement about what went down on his watch. It makes your blood boil.
July 2nd, 2009 at 11:04 pm
He got a lot smarter after he joined PIMCO…
Greenspan Helped Pimco Make Billions, Gross Says (Update3)
By Sree Vidya Bhaktavatsalam
May 21 (Bloomberg) — Alan Greenspan, the former Federal Reserve chairman, has helped Pacific Investment Management Co. make “billions of dollars” in his role as a consultant, said Bill Gross, the bond manager’s co-chief investment officer.
During a 30-minute discussion on banks several months before the global credit crisis, Greenspan’s “brilliance in terms of forecasting the potential for exactly what happened was a big money saver for us,” Gross, who runs the world’s largest bond fund, said yesterday at a conference organized by the Asia Society in Los Angeles. “He’s made and saved billions of dollars for Pimco already.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aifsOWlwkqYM&refer=home
July 2nd, 2009 at 11:07 pm
Onlooker’s blood must really be steaming after my last post. Oh, I forgot to mention the $8.5 Million book advance.
July 2nd, 2009 at 11:07 pm
Seems there’s a contradiction between the two Greenspans. Acting? Drama? Playing dumb?
Or else his knowledge was so partitioned, only half his brain got exercised.
July 2nd, 2009 at 11:39 pm
I posted a couple of comments re: Greenspan and bubbles the other day.
Remarks by former Federal Reserve Chairman Alan Greenspan in a December 2002 speech before the Economic Club of New York:
“But often-cited concerns about the levels of debt and debt-servicing costs of households and firms appear a bit stretched. The combination of household mortgage and consumer debt as a share of disposable income has moved up to a historically high level. But the upward trend in the series reflects, in part, financial innovations that have increased access to credit markets for many households. These innovations include the development of a deep secondary market for home mortgages, along with the advent of credit scoring and automated underwriting models that have enhanced the ability of loan officers and credit card companies to identify good credit risks. These innovations lower the risk level of any given amount of debt.”
* * * * *
“Some argue that bubbles can be prevented or defused by financial regulatory initiatives. It is observed that asset bubbles have often been associated with rapid credit expansion, and hence it is claimed that restraining credit growth could quash nascent bubbles. A bubble could conceivably be defused by restrictive credit regulations that stifle economic growth. It is by no means clear, however, that such a regime would be more conducive to wealth creation over time than our current regulatory system. Also of relevance, in a vibrant financial system, such as exists in the United States, there will always be many avenues available to investors for financing a bubble.”
Alan Greenspan
Remarks before the Economic Club of New York, New York City
December 19, 2002
http://www.federalreserve.gov/boarddocs/speeches/2002/20021219/
July 2nd, 2009 at 11:40 pm
SB
WTF?? Yes, my blood just turned to steam!
Clawback. I want clawback from that old fool. He should give all his ill gotten gains to the Treasury. I know it’s a mere pittance in a sea of debt but, well, you know.
I’m not even sure whether to believe Gross on this. Something tells me they got inside info from Greenie over the years and they paid him back with a cushy fat paycheck for all the help. Now they’re concocting this tale to make it look good. Any way you cut it, it stinks to high heaven.
July 2nd, 2009 at 11:40 pm
This is the speech he was referring to in the segment Andy cited to. He and the interviewer were talking about November-December 2002.
July 2nd, 2009 at 11:42 pm
Transor Z
That’s right, the Fed can’t do anything about bubbles, except trade on them with PIMPCO.
July 2nd, 2009 at 11:46 pm
Relating to recent earlier posts…..
I must admit that I’m guilty of seeing the world in thousands of shades of gray at times…..I rarely see things as black and white (to a fault)….it’s easy to pin a ton of blame on AG…and some have made some money doing so….and it’s now become “conventional wisdom” to say low interest rates were the problem. Maybe, though, the problem was much more nuanced than is apparent at first blush. Maybe the Fed yields MUCH less power/control than we give them credit….
For me the problem was MUCH less about interest rates than regulating the “roving Cavaliers of Credit.” In the Fed’s defense, the former was EVERYONE’s problem (Congress, White House, Fed, et al.)
Just saying….
July 2nd, 2009 at 11:52 pm
To think that I spent my whole life not paying any attention to this stuff is — I don’t know what — A waste? Stupid? Lazy?
And like Matt Taibbi said in the really charming BNN interview, you can’t talk about it with your friends. There’s no interest. I’ve spent hours and hours of time between work tasks, after the kids are in bed engrossed in this stuff for 8 months now. I’m a reasonably bright guy but I understood NADA and still don’t understand very much.
July 3rd, 2009 at 12:44 am
“playing their stupidity all along.”
Here is hoping that we can stay solvent longer than they can stay irrational…
July 3rd, 2009 at 1:15 am
I liked the bamboo article. It puts the U.S. one step closer to being a banana republic.
July 3rd, 2009 at 3:11 am
The student loan thing hits home here. My daughter has a law degree and $150k loan, and has just started a temp job as a paralegal because there are no jobs for lawyers.
What the law schools at the bug universities are doing it defrauding students in the professional schools to fund the courses that can’t pay for themselves, like music. After all, who is going to borrow $150k to learn the tuba. A Loyola NO law professor who told us this in an ethics continuing education seminar no less. What makes it fraud is that they tell kids like my daughter who are scared of signing the loan papers not to worry, they will make plenty of money to pay the loan off. And none of it is dischargeable. Of course Sallie Mae is getting bailout money. If the want to bail out Sallie Mae, they should do it by giving the kids money to pay back the loans. Instead they are all saddled with debt they cannot repay and it limits severely what they can do in their careers. Can’t take low paying jobs or hang out a shingle with that kind of a note.
Her old LSU English teacher teaches paralegal classes and told her students to look at moving out of state because all the Louisiana law graduates are taking the paralegal jobs.
July 3rd, 2009 at 3:13 am
No one else mentioned it, so I’ll point out what I found most interesting in the Harvard article. It really gives you confidence in our economic policy:
“A $1 billion mistake
• Harvard sold those bonds because it needed cash, fast, to cover what sources say was an almost unthinkable $1 billion unrealized loss from interest-rate swaps. The swaps were put in place under former Harvard president Larry Summers in the early 2000s to protect the university against rising interest rates on all the money it had borrowed. Instead, interest rates plunged. Yet for reasons no one can seem to explain, the university simply forgot to (or chose not to) cancel its swaps. The result was a $1 billion loss.”
July 3rd, 2009 at 3:23 am
Re: Bamboo
Boy, does that stuff grow well in the delta. My neigbor planted a little by the fence and it became a major headache. It’s like playing wack-a-mole.
The stuff may have potential. I remember that America’s Test Kitchen (and excellent show, BTW) tested cutting boards and the winner was a board made of bamboo:
“Recently, eco-friendly bamboo boards claiming to match and even surpass the benefits of wood have appeared in kitchenware stores everywhere. Alongside them are lightweight composite boards, fashioned from laminated wood fiber, which look like wood but clean up like plastic. Do these newcomers offer anything better than the old standbys?
Bamboo boards are lightweight and attractive, but we wondered about their endurance. This material is often misunderstood to be a type of hardwood; it’s actually a kind of grass. But one sample turned out to be a pleasant surprise. In test after test, it matched the outstanding comfort and ease of cutting on a classic maple butcher block-and it was so impervious to abuse that it looked new after hundreds of cuts. Like wood, this board can’t go into the dishwasher and would benefit from occasional oiling, but we were more than willing to trade those inconveniences for its superior feel. But not all bamboo boards are created equal. The other bamboo boards’ surfaces were not as durable or forgiving, due in part to their construction and possibly also to the age of the bamboo at harvest—the younger it is, the softer the cane and the cheaper the board.”
July 3rd, 2009 at 7:45 am
My friend is at the stage of questioning the government’s statistics because he believes it is far worse out there than what is being reported on happytalk CNBC.
————–
With everyone living from paycheck to paycheck and using debt to complement the end of month cash flow situation, how can you expect the game to last much longer when households start receiving IOUs in lieu fo cash?
The writing is on the wall but everybody’s still looking up to the sky.
July 3rd, 2009 at 7:53 am
there was a case I remember where someone was involuntarily removed from medical school and could prove he could never make more than $35,000 / year and he was not allowed to discharge his $250,000 student loan debt. So even that is not a slam dunk.
—————
He’s 47 with 400K in debt? Who the hell would lend him that kind of money? They should lose their licence to print money!
Debt is a 2 party contract and both are at fault.
July 3rd, 2009 at 7:59 am
m in nola-
sorry to hear about your daughter’s predicament- a law degree with only temp jobs to choose from-I have been hearing at this site from attorneys who are recently unemployed – guess I am trying to understand what is going on- why the legal profession?
Was the legal profession that intertwined with the Finance industry or is it some other dynamic that I am missing?
anyone that has some info is welcome to comment
July 3rd, 2009 at 8:10 am
http://www.ft.com/cms/s/0/1e06911c-6719-11de-925f-00144feabdc0.html
American jobs data are worse than we think
By Mohamed El-Erian
Published: July 2 2009 16:16 | Last updated: July 2 2009 16:16
What if the US unemployment rate rises above 10 per cent and stays there for an extended period? This is a question that is not being asked enough, even though it entails yet another historical anomaly that will further complicate policy formulation and open it up to greater political interference.
The unemployment rate is traditionally characterised as a lagging indicator and, as such, is viewed as having limited predictive power. After all, unemployment is a reflection of decisions taken earlier in the cycle so the rate always lags behind the realities on the ground – or so says conventional wisdom.
This conventional wisdom is valid most, but not all of the time. There are rare occasions, such as today, when we should think of the unemployment rate as much more than a lagging indicator; it has the potential to influence future economic behaviours and outlooks.
Today’s broader interpretation is warranted by two factors: the speed and extent of the recent rise in the unemployment rate; and, the likelihood that it will persist at high levels for a prolonged period of time. As a result, the unemployment rate will increasingly disrupt an economy that, hitherto, has been influenced mainly by large-scale dislocations in the financial system.
In just 16 months, the US unemployment rate has doubled from 4.8 per cent to 9.5 per cent, a remarkable surge by virtually any modern-day metric. It is also likely that the 9.5 per cent rate understates the extent to which labour market conditions are deteriorating. Just witness the increasing number of companies asking employees to take unpaid leave. Meanwhile, after several years of decline, the labour participation rate has started to edge higher as people postpone their retirements and as challenging family finances force second earners to enter the job market.
….The co-head of Pimco argues here what I have mentioned a couple of times…that is, that sometimes unemployment CAN’T be a lagging indicator. Since I have exactly zero formal courses in economics, take it for what you will…but it seems to me that before the unemployment becomes a lagging indicator, there must be a significant time it is a real-time or coincident indicator…
July 3rd, 2009 at 8:17 am
>> For me the problem was MUCH less about interest rates than regulating the “roving Cavaliers of Credit.”
I agree here, Andy. Like cvienne said recently, fractional reserve banking is almost a license to counterfeit. I think what we witnessed in the 2000’s was widespread counterfeiting by those roving cavaliers.
July 3rd, 2009 at 9:25 am
Corporate law is really hurting. Most of the BigLaw firms have announced deferrals of new associates, pay cuts, layoffs or some combination. Transactional business is as you would expect.
Bankruptcy is booming, but personal bankruptcy is a volume business. There is pretty good money in corporate bk. But few kids go to school dreaming of standing around bk courts and filling out forms. And this is temporary work with a lot of firms looking for warm bodies.
Other more subtle things are happening, as well. My friends who do in-house counsel work are being pressured to resolve matters to avoid the expense of outside counsel. I was surprised to see our divorce work drop off. But folks can’t produce retainers and friends are getting stiffed when they try to cut folks a break. So we’re sticking to our guns on retainer requirements.
I feel for the kids coming out of school now — in any field. Look at the U rates for the youngest cohort.
July 3rd, 2009 at 9:33 am
Also: Harvard laid off 275 people the other day.
July 3rd, 2009 at 9:42 am
Crazy:
I think the problem with too many lawyers is just part of the transformation of the US economy into a “service economy” where no one actually makes anything. When I got my JD in 1981, there were already gripes about too many lawyers. It has gotten much worse in LA since then and I suppose most other places.
I was never in an hourly billing practice, but part the business models for many firms was to have a group of partners and associates; while business was good, the clients paid high rates to the partners, and lesser rates for associates, but the associates were paid enough less to give the partners a cut. This was another need for young lawyers. Of course, there were limits to how far these firms could grow before running out of clients willing to pay for this model. I know from conversations with defense lawyers that it got to the point where businesses like GM or Ford who got sued a lot would make package deals with their lawyers where the lawyer got a flat fee to handle the entire case, including payment for an associate lawyer and experts. This limited the incentive to “run the meter” as we used to say about those in the big firms with a lot of overhead to pay.
The law schools have an incentive to train too many lawyers because it is very lucrative and has become a profit center for universities. If you think about it, it’s a great business model. No special equipment is needed, just lecture rooms. They charge $1k per semester hour and stick 30-40 students in a classroom, or more for some required courses. In music, art, and, I imagine, medicine, or some other curricula, there’s no way to have this student/teacher ratio because too much individual attention is required. What I am saying doesn’t apply to LSU Law school, which was a good school and great bargain at $8k/year last time I looked. Of course, LSU can afford to be very selective at that price. My daughter wound up on the waiting list and just missing out as a result of not taking undergrad seriously enough despite “parental advice.” Being able to say I told you so is never a good position to be in.
I have been telling other lawyers for a decade that I thought the law schools were committing fraud on the students. In Louisiana there are four law schools turning out 1000+ lawyers per year and the state just was big enough to absorb them. There have long been stories about only the top third of the class being able to get jobs as lawyers. Probably only the top tenth right now, if that much.
All this has come to a head now that most big corporate clients can’t/won’t pay hundreds per our for a lawyer. The top payers were, as one might guess, the financial institutions, and the cutbacks in their law firms’ is a somewhat overlooked secondary effect of the collapse. I know back in the 90’s there were complaints from judges that most first year lawyer were getting paid significantly more than the judges fo long experience, starting $150 or so in NY. This hasn’t been limited to NY. On and off, I’ve read a blog that covers legal layoffs, mostly in the top tier where it would be reported, and it is happening around the country. This is a destruction of a lot of high paying jobs – another reason I think high markup consumer electronics like Apple have to fall in price.
The demise of the traditional hourly rate model that supported the big firms is a subject for much discussion in the ABA Journal which I read only occasionally, as the ABA is of, by, and for, the big firms as most industriy groups are.
As to the part time aspect, at this point I’m hoping to get some of that if I can’t land something full time. Since relocating to Houston, have been looking around, but most firms that are looking for people either want a specialist who’s done one thing for years or worked in a corporate environment or a young lawyer they don’t have to pay much. I’m none of those. I do have the advantage of actually being able to sit down and learn a new area of the law pretty quickly, which is not something a lot of these specialists can do. So I will make out somehow. Not that I need to make tons. While we aren’t rich, we have no debt and were not stupid enough to co-sign the daughter’s loan as many parents probably have. The wife makes good money and could go part time if we could get insurance reasonably.
July 3rd, 2009 at 9:45 am
Crazy: I just left a very long post on my theorys of the problems with law practice now and the fraud being commtted by many law schools. Looks like Wordpress ate it and you may never see it. What Transor Z says is correct, although I never could stomach divorce work. Too nasty.
July 3rd, 2009 at 9:58 am
tz/m in nola-
thanks for the feedback- mike- too bad your response was vaporized-
I am wondering how long the schools can keep up the charade then- saying that the student loans can be paid off once they get their “high paying” lawyering job- if the word on the street is that jobs are few and far between-
makes me wonder if trade schools are becoming a good alternative to the white collar education from colleges
July 3rd, 2009 at 10:05 am
call me crazy Says:
July 3rd, 2009 at 7:59 am
…I have been hearing at this site from attorneys who are recently unemployed – guess I am trying to understand what is going on- why the legal profession?
Was the legal profession that intertwined with the Finance industry or is it some other dynamic that I am missing?
anyone that has some info is welcome to comment
__________
Well, let me give you some of my background (I normally don’t like to talk about it). I was primarily a bankruptcy attorney in Oklahoma until they changed the bankruptcy laws in 2005. My practice went from doing 4 bankruptcies per week to about 4 per year. In 2007, I took a job with a private company and found out that I could have a career where I didn’t have so much stress. Now I don’t want to go back to the law practice.
I don’t regret the time I spent in the law practice because I learned how the real world works. There is a crossover between bankruptcy and white-collar crime. Although I was in Oklahoma, I saw what what was happening out in California and Florida even though I wasn’t there. I knew we were heading for Great Depression II because of all the fraud that was taking place.
As far as incomes for lawyers go, the legal profession is suffering the fate as the rest of society: you have a few lawyers who make all the money and rest get a pittance. And the pittance is not enough to pay off the student loans and have a family, or a house or any other number of things. The debt is starting to crowd out opportunities. Entrepreneurs and innovators cannot take the financial risk due to the “barriers to entry” that I keep harping about.
July 3rd, 2009 at 10:15 am
okie-
so you changed careers and no longer practice law? I know that a degree in jurisprudence is 2 to 3 years beyond an undergrad- sure you learned much- but it still seems that that extra college degree may not be helping you in your current profession-
although life usually throws a few wrenches into anyone’s plans
July 3rd, 2009 at 10:58 am
I really wish that the legal profession would take a chapter out of the medical profession playbook and limit the number of law grads to the existing job market. As Mike said above, rumblings about “law mills” being a scam to churn out unemployable kids up to their eyeballs in debt with no job prospects are very ugly right now. I graduated after Mike but it’s funny to hear people were saying that even then when you think about the boom that happened in the mid-80s under Reagan.
Okie, Amen to your point about there being a crossover between bk and white collar crime. I think of bk court a lot like family court. Unstructured and messy, not at all what most people think of as legal practice. And people are so sketchy/careless . . . financial records — LOL!
I’m very, very fortunate to work with other lawyers I trust and actually like very much. There are actually quite a few people in the profession who “get it,” have people skillz, and just laugh at the a-holes and their paranoia and their overwrought “threatening” correspondence. You can make a comfortable living in the law without being an a-hole, believe it or not — even in family law.
July 3rd, 2009 at 11:02 am
As far as incomes for lawyers go, the legal profession is suffering the fate as the rest of society: you have a few lawyers who make all the money and rest get a pittance.
——————-
Well, in the 1800s everybody worked as everybody was needed for survival. As the farms got more productive, you got an oversupply of labor that headed for the cities.
When you only need an ever smaller % of the workforce to produce essentials, you need a lot of more unessential jobs to keep your population employed and consuming.
I’m nost sure that the answer is so much producing things as producing services that the population will be needing. For example, for the next 30 years, are we going to need more lawyers or more caregivers?
The problem is that we have a whole bunch of people lacking the skills for future demand/needs. Furthermore, the education requirements keep on getting higher, while the available funds/savings to pay for these services are quite low.
Today’s nurse is yesterday’s doctor with much lower pay. And that is going to continue.
July 3rd, 2009 at 11:15 am
Of course, I’m assuming I’m not an a-hole. But I suppose nobody thinks they’re an a-hole.
July 3rd, 2009 at 11:53 am
Why no reading material denouncing the myth of global warming? Even the Chinese have bought into this bogusness and are now investing as much money in renewable sources of energy as fossil fired.
http://www.nytimes.com/2009/07/03/business/energy-environment/03renew.html?pagewanted=2&hp
July 3rd, 2009 at 12:21 pm
wunsacon Says:
July 3rd, 2009 at 8:17 am
>> For me the problem was MUCH less about interest rates than regulating the “roving Cavaliers of Credit.”
I agree here, Andy. Like cvienne said recently, fractional reserve banking is almost a license to counterfeit. I think what we witnessed in the 2000’s was widespread counterfeiting by those roving cavaliers.
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If the only source of debt creation was “fractional reserve banking” we would have no where near the amount of problems we currently do. You didn’t need to be a legitimate bank to extend credit to anyone (See Fannie Mae/Freddie Mac/Sallie Mae/Ginnie Mae/etc, etc…).
July 3rd, 2009 at 12:38 pm
Mike in NOLA and others
You excellent long post did show up, and I recommend others have a look at it if you overlooked it:
http://www.ritholtz.com/blog/2009/07/afternoon-reading-4/comment-page-1/#comment-189645
Thanks for taking the time Mike, it’s nice to get an inside perspective on such things.
There is much restructuring to be done throughout our economy/society as this debt bubbles bursts. It’s driven so many things in ways that many of us haven’t realized or foreseen.
July 3rd, 2009 at 12:52 pm
@wunsacon
re: “I agree here, Andy. Like cvienne said recently, fractional reserve banking is almost a license to counterfeit. I think what we witnessed in the 2000’s was widespread counterfeiting by those roving cavaliers.”
I wouldn’t call it counterfeiting though, as it was quite legal as permitted by our very accommodating legislative and executive branches. The shadow banking industry got what they paid for in political graft, oops, I mean contributions (
) . And they sure had a party creating money in the form of debt, didn’t they?
But I take do the point that the Fed’s direct contribution to the bubble is lessened by this factor. But they (i.e. Greenspan) could have taken action to cut that off before it got out of control. He had much influence at the time (extolled as a financial genius and savior) and should have known that it would lead to disaster.
I think the reason he is targeted as the primary contributor to this fiasco by so many isn’t due to his primary role as the Fed chairman and control of interest rates, but that he among all people was uniquely most able to cut this off at the pass. If he had taken a strong stand against the proliferation of so much debt, maybe congress and the president would have been compelled to do something about it. But alas, his interests were too aligned with big banking and the finance industry. Look where he landed, pulling down enormous amounts of money for just flapping his yap.
We’ll never know what he could have done to help avoid this if he had a real moral conscience and a backbone.
July 3rd, 2009 at 12:53 pm
M in Nola-
I left you a shout out thanking you for your excellent post- however- was “awaiting moderation” and then disappeared-
we’ll see if this posts- maybe I have been flagged as a “persona non grata” – who knows